Most people know that putting money in a retirement account will improve their future financial security, but not as many think about how they can optimize their Social Security benefit for more money in retirement. Yes, the government ultimately determines the size of your checks, but the formulas it uses to do this are public knowledge.
You can leverage that knowledge to score more money for retirement, but many miss valuable chances to do this. Here are three signs you're missing opportunities to boost your future Social Security benefit.
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1. You haven't worked 35 years yet
The Social Security Administration looks at your earnings over your 35 highest-earning years, adjusted for inflation, when calculating your benefit. This is known as your average indexed monthly earnings (AIME).
You can still qualify for Social Security if you haven't worked for 35 years, but you may not be happy with the size of your benefit. The government will add zero-income years to your calculation, and even one of these can shrink your checks by several dollars.
Working at least 35 years helps you avoid this issue, and some people choose to work even longer. Those who work more, often see their benefits increase over time. Once they pass the 35-year mark, the Social Security Administration replaces some of their lower-earning years, often from earlier in their careers, with more recent, higher-earning years in their benefit calculation. That leads to larger monthly checks.
2. You haven't considered the implications of your claiming age
The federal government assigns everyone a full retirement age (FRA) -- between 66 and 67 for today's workers -- based on their birth year. You must wait until this age to claim the full benefit you're entitled to based on your work history. This is known as your primary insurance amount (PIA).
But you can claim benefits as early as 62, though doing so will shrink your benefits by 25% per check if your FRA is 66 or 30% if your FRA is 67. However, people with short life expectancies often choose to sign up early, as do many who struggle to pay their household expenses without Social Security's help.
Delaying benefits slowly grows your checks over time until you reach your maximum benefit at 70. That's 124% of your PIA per month if your FRA is 67, or 132% if your FRA is 66. Waiting to claim could lead to a larger lifetime benefit, but this usually only works out for those who live into their 80s or beyond.
You can sign up at any time between 62 or 70. It's up to you to decide which starting age is most beneficial for you. But it's wise to consider several options before you make that call.
You can estimate how large your checks will be at various starting ages by creating a my Social Security account. Multiply your monthly benefit by 12 to get your estimated annual benefit, and then multiply this by the number of years you expect to claim to get your estimated lifetime benefit. For example, a $2,000 monthly benefit claimed for 20 years would give you a lifetime benefit of $480,000. Do this for several ages until you find the one that offers you the largest benefit overall.
3. You haven't talked your decision over with your family members
Single adults with no dependents can choose their Social Security claiming age based on what's best for them alone. But married couples and seniors caring for minor or disabled children need to think about how their decision will affect other members of their household.
Spouses and children may be eligible to claim benefits on your work record, but they can't do so until you sign up for benefits. This may influence when you choose to sign up. Claiming early might result in smaller checks for you personally, but if you have a spouse and minor children also bringing benefits into the household, you could end up with more money overall.
Sit down with all affected household members to talk over when each eligible member of the household will claim benefits. If you have any questions about who in your household is eligible, reach out to the Social Security Administration for clarification.
These tips may not all apply to you, but if you see any opportunities you missed above, take the time to review the suggestions here and make whatever changes are necessary to maximize your benefit. Review your claiming strategy annually when you look over your retirement plan too. If you experience a major life or financial change, you might want to rethink when you apply for benefits.
